The Government has vowed to stand "shoulder to shoulder" with its citizens in response to heightened pressure and increasingly belligerent rhetoric from Madrid.

Relations between Gibraltar and Spain have deteriorated in recent months in a row over fishing grounds, with Spanish ministers raising the prospect of imposing a £43 levy on vehicles crossing the border and the possibility of closing airspace.

Jose Garcia-Margallo, Spain's foreign minister, said the proceeds of a border fee could be used to help Spanish fishermen who have lost out because of damage to fishing grounds allegedly caused by Gibraltarian authorities following the creation of an artificial reef.

The Spanish government has been criticised for intensifying checks at the border and causing huge traffic jams.

A Downing Street spokesman said: "The Prime Minister called the Spanish Prime Minister, Mariano Rajoy, this morning to raise serious concerns about actions by the Spanish at the border with Gibraltar and suggestions from Spanish Foreign Minister Jose Garcia-Margallo that they may introduce further measures.

"The PM made clear that our position on the sovereignty of Gibraltar and its surrounding waters will not change. He also reiterated, as the PM and Mr. Rajoy had previously agreed, that the issue should not damage our bilateral relations. However there was a real risk of this happening unless the situation at the border improved.

"Mr Rajoy agreed that he did not want the issue to become an obstacle in the bilateral relations and that we needed to find a way to de-escalate the issue. As a next step, the Foreign Secretary should speak to Mr. Garcia-Margallo to discuss a way forward.

"In the meantime, Prime Minister Rajoy committed to reducing measures at the border. Both leaders agreed that there should be a solution to the fishing dispute."

European Commission (EC) spokesman Frederic Vincent confirmed that controls on the Spain-Gibraltar border are allowed because the latter is not included in the Schengen Borders Agreement, which permits people to travel freely within the Schengen area of 26 countries.

Mr Vincent said these controls or sanctions must be "proportionate" and the EC is studying the legality of Madrid's threat to impose a fee to cross the border between the two countries.

The matter will be discussed at a future EC meeting, the spokesman said.

A deal on ending the dispute, which dates back to the Treaty of Utrecht 300 years ago that ceded the territory to Britain, appeared close in 2002 after negotiations between then Europe minister Mr Hain and his Spanish counterpart.

The Government has insisted there will be no compromise over the sovereignty of Gibraltar.